Sources of Time Variation in the Covariance Matrix of Interest Rates

Christophe Pérignon and Christophe Villa
Additional contact information
Christophe Pérignon: Simon Fraser University
Christophe Villa: ENSAI, CREST-LSM, and CREM

Journal of Business, 2006, vol. 79, issue 3, pages 1535-1550

Abstract: The main objective of this paper is to study the sources of time variation in the covariance matrix of interest rates. We depart from the traditional standard deviation–correlation decomposition of covariances and investigate whether time variation in the covariance matrix of bond yield changes is caused by time-varying eigenvalues and/or eigenvectors. On the basis of a formal testing procedure, we find that common factors display a clear time-varying volatility over the past three decades. Most notably, we observe that the switches in monetary policy that take place with the appointment of a new Federal Reserve chairman play an important role in characterizing the time variation in the loadings on the common factors that drive interest rates.

Date: 2006
View citations in EconPapers

Downloads: (external link)
http://www.journals.uchicago.edu/cgi-bin/resolve?JB790317 main text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:ucp:jnlbus:v:79:y:2006:i:3:p:1535-1550

Ordering information: This journal article can be ordered from
http://www.journals.uchicago.edu/JB/home.html

Access Statistics for this article

Journal of Business is edited by Albert Madansky

More articles in Journal of Business from University of Chicago Press
Address: The University of Chicago Press, Journals Division, P.O. Box 37005 Chicago, IL 60637
Series data maintained by Christopher F. Baum ().